Andy Finnell makes a lot of sense in How to Price Your iPhone App out of Existence.
Since the opening of the app store I’ve felt that the $0.99 (or thereabouts) pricing model isn’t sustainable – Andy lays that out in thorough detail.

He does make one point I’d argue with, however.  His assertion that developers should charge a price that’s high enough to keep them in business is backwards, in my opinion.  Developers should charge a price commensurate with the value of their software to users.  If I write an app that only appeals to 5 people and I need $50,000 a year to live, it’d be ridiculous to ask those 5 people to pay $10,000 / copy. If it’s worth $50 to them based on what it can do, then that’s what it’s worth.  If that’s not enough to pay the bills, then I shouldn’t be writing that application, or should look at changing something (the feature set, advertising, or marketing) to make it more viable.  Of course, we often don’t know the correct formula at the outset, but in the case of iPhone apps, it seems clear that charging $0.99 is not going to enable you to really support or update it long-term (where “long-term” is more than a few months).